Professor Anderson’s Five Pivot Rules
The late R. N. Elliot and John C. Sinclair of Francis I Dupont & Company were the first to point out that all bull markets are composed of five fluctuations, three up and two down during the rise, and a down -up-down formation during the correction, or counter move following the rise. Elliot’s contention was that this followed a law of nature.
Your director has had pleasant and informative discussions with Mr. Clyde Morse, a former coworker with Elliot, and incidentally the grandson of Morse of telegraph fame. Mr. Morse stated that those apparent inconsistencies where there could be more than five trends counted were termed extensions by Elliot.
Professor Anderson’s Rule differs from Elliot’s in observing 5 P after the zero starting point for the first rise, and 5 P on the down trend before a down trend line is crossed by rising prices. On the enclosed charts you can see Elliot’s 3 down moves indicated by a, b, c. But in nearly every case you can count 5 pivots after the 0-4 line has been penetrated before the next five Ps follow the crossing of the resulting trend line, and action taken.
The EP formation is a special case of the Five Pivot Rule. IT is special because it alone indicates a minimum drop where R equals A max in nearly every case as shown in the Oct ’66 Copper, where the 0-4 line has been drawn in. You should draw in the other 0-4 lines for experience. And notice that on frequent occasions the drop after other rising 0-5 has been penetrated may be less than the farthest P above the 0-4 line. Also on very rare occasions this line may be penetrated temporarily, for a very short distance, before a new resumption of the original trend that continues until another 5 P has formed. The first of the above cases is shown in red on the Feb bellies chart. The second case of temporary penetration is on this same chart at P6 in August. The resulting “whip-saw” loss may usually be more than offset by prompt action when prices cross either the minor trend line from 5 to 6 in August, or the upward slanting line drawn through the 3 and 5 in July, as examples.
Eventually the extension of any 0-4 line will be crossed and will provide a good gain more than making up any of these rare whip-saw losses. (Shown by the October drop in Feb. Bellies chart)
The great Helmholtz wrote, “Of all branches of human knowledge there is none like geometry. It escapes the tedious and troublesome task of collecting experimental facts. The sole form of its scientific method is deduction”. You have noticed that the morphological approach used in this Course employs simple geometry. It provides consistently unusual profits as long as its rules are acted on. As Helmholtz indicated it avoids the endless facts upon which fundamentalists base their approach toward price prediction.
Alan H. Andrews, Director
Professor Anderson’s 5 Pivot Rule
Zero to Fourth Pivot Rule
Expanding Pivot Rule